(MENAFN - Khaleej Times) The outlook for insurance business which has almost tripled through 2006-13 and with premiums increasing to 18.
The GCC insurance industry which has trebled its business to 18.4 billion in seven years will see its credit profile enhanced on the back of a string of regulatory measures Moody’s said on Tuesday.
These regulatory changes apart from improving the credit profile of the insurance sector will also help bring market stability and transparency by strengthening several vital aspects including capital requirements asset quality and reserve adequacy Moody’s analyst Mohammed Ali Riyazuddin Londe said.
The outlook for insurance business which has almost tripled through 2006-13 and with premiums increasing to 18.4 billion from 6.4 billion looks brighter following the introduction of a number of Takaful-specific regulations.
These regulations are credit-positive as they strengthen policyholder security directly by ensuring availability of capital or in some cases indirectly by improving capital access through requiring companies to list on the stock markets Londe said.
Also increasing mandatory insurance covers such as health unemployment motor third-party and liability have increased market awareness and is a credit positive for the market’s product diversification he said.
As the GCC economies keep diversifying away from oil and gas based revenues insurance markets have grown quickly and often aggressively. There have been varying degrees of sophistication and fierce pricing competition in many regional markets with several players determining premiums based on competitor rates rather than true risk-based underwriting the Moody’s analyst pointed out.
“This has driven volatility in underwriting results and hindered sustainable growth. Furthermore market awareness and the perception of commercial and retail consumers is negatively affected by the often constant flux in pricing variation in consistency of the services provided the quality of the products provided and claims handling” Londe said.
Regional insurance regulators are implementing enhanced regulations and guidelines to deal with the expansion in scope and type of risk covered by insurers and to address often poorly-performing markets. These reforms generally address risk-based capital or RBC and minimum asset liability management standards pricing adequacy corporate governance and transparency and introduce mandatory covers.
“We expect that the new regulations will lead to greater stability within the GCC insurance marketplace. Most of these regulations are evolutionary by way of market consultation which should help in the market’s understanding and acceptance of these albeit leading to a slightly slower implementation process” said Moody’s. It noted that the GCC insurance market’s capital adequacy has been governed by simplistic minimum capital requirements with no risk-related aspect although in most jurisdictions the minimum capital requirements are relatively high such as the UAE’s minimum capital of Dh100 million for insurers and Dh250 million for reinsurers.
This lack of risk-reflective regulatory capital needs fostered variation in the market in terms of the types and levels of risk taken on by insurers in terms of underwriting as well as investment risk with for example considerable deployment of capital into high risk assets such as real estate and equities.
Regulators in many states are now implementing RBC measures to ensure that the required capital is more closely correlated to the risks undertaken in aggregate by insurers.
Moody’s said it expects capital-centred regulatory changes to encourage insurers to focus on ensuring effective use of capital leading to improving underwriting quality and possibly reduce pricing volatility.
“We expect the increasing regulation of the insurance market will help to stabilise this volatility and further encourage market growth although additional regulatory intervention may still be required in certain scenarios to ensure well-functioning market” the ratings agency said.